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Corruption Scandal Exposes Rift Among Syria's Rulers

May 6, 2020
12 min read
Corruption Scandal Exposes Rift Among Syria's Rulers

A powerful businessman in Syria has appealed to President Bashar al-Assad to intervene in a tax dispute, warning of a “future disaster” — while at the same time exposing rifts within Syria’s power structure. The Islamic Republic of Iran is among the many parties with significant political and financial interests in how the struggle plays out. 

The corruption scandal has gripped the Syrian public and hit international headlines — but President Bashar al-Assad has all but ignored it, choosing to cast aside growing deep divisions within the elite powers of the country. The Syrian businessman Rami Makhlouf, a cousin of the president, has released two videos over the last few weeks, begging al-Assad to intervene to prevent “unjust” demands from the government that he settle a 125-billion-Syrian-pound ($92-million-dollar) tax bill. Makhlouf, who owns the mobile network supply company Syriatel, also published similar videos on his Facebook page, as well as the warnings about impending disaster if al-Assad did not intervene.

But in his first public speech since the expose on Monday, May 4, the president said nothing about the matter, sticking tightly to the coronavirus outbreak in Syria and the government’s reasons for relaxing restrictions despite the fact that the virus was continuing to spread. 

It is unclear why Rami Makhlouf took the decision to discuss the matter within the financial chamber of the Republican Palace, to which he has access both because of his familial ties to the president and because of his vast financial influence. But experts and analysts say his statements highlight the fact that the al-Assad regime has been unable to control rampant corruption in the country, especially among its warlords — and it is now having a dramatic effect on the Syrian economy.

This was confirmed by Syrian economic researcher Younis Al-Karim. In an interview with IranWire, he said, "smuggling operations into Lebanon as well as opposition regions carried out by warlords, in addition to other factors, have led to major imbalances in the money supply and the loss of goods and services," adding that the situation put "the Economic Chamber of the Republican Palace and the economic class represented by Rami Makhlouf and the old guard under great pressure."

While rampant corruption in Syria has put pressure on Rami Makhlouf and the elite class he belongs to, Al-Karim claimed there was a new balance of power in which "new warlords control ministers and the political authority represented by al-Assad.” This trend, he said, was “hindering the economic progress” of this once financially dominant elite group, “causing Rami Makhlouf and his economic class to suffer.” 

In addition, there are large amounts of cash in the Syrian currency market as a result of the regime randomly printing large quantities of Syrian pounds (SYR) in 2000-pound denominations. The "money supply," therefore, is greater than the country's needs, while the Central Bank of Syria —  affiliated to the al-Assads — has not taken any steps to stem the rise in the Syrian pound's exchange rate, which has subsequently caused the collapse of the economy and again increased pressure on the economic class represented by Rami Makhlouf. 

In recent years, powerful politicians have increasingly fostered a tense economic environment by prioritizing their own financial gains and refusing to coordinate with the business community.  In many economic environments, such coordination is vital and productive — but the al-Assads and other members of the political elite have not allowed this, instead attempting to control the economy, while at the same time assisting the warlords. The result has been an extremely volatile and dangerous environment, Al-Karim says. 

"The real disagreement is over the money and sums of money that Rami Makhlouf manages outside of Syria, since everything inside Syria is practically in the hands of the regime," former Syrian diplomat Bassam Barabandi told IranWire. If the regime wanted to confiscate any of Maklouf's money or assets held in Syria, it could, he says. "The value of his wealth abroad is estimated at $100 billion. However, it is currently unclear how the regime could catch Rami and force him to cede it."

Barabandi, who is a former diplomat at the Syrian Embassy in Washington, points to the recently-released clips: "In the second video, Rami said, 'They asked me to give up everything, and that I would be safe.'" Barabandi also clarified that "everything definitely does not just mean Syriatel — everything means money outside of Syria."


Conflict Within the Regime

Rami Makhlouf’s videos included friendly messages to his cousin Bashar al-Assad — but there were also very serious threats, indicating that the regime could experience an internal clash, signaled by Makhlouf’s repeated remarks that the matter could lead the country into "a difficult situation."

Makhlouf's recordings, as well as the random decisions issued by Syrian government institutions before them, reveal a clear struggle between parts of the Syrian regime, and between the regime's Russian and Iranian allies, which currently have direct or indirect involvement in many aspects of how the Syrian state is run. Makhlouf mentions this in his second recording, when he accuses the Syrian security services of arresting Syriatel employees — a claim that comes amid reports by the Syrian Observatory for Human Rights and others that security services had arrested senior Syriatel employees, including more than 28 managers and technicians at the firm —  under Russian orders. In some cases, it was not simply a case of giving orders, and Russian forces accompanied the raids and arrested employees.

According to Al-Karim, there is a distinction between the five main currents at the heart of the regime: First, there are those affiliated to the al-Assads, people who hold public offices and warlords who cannot be trusted. Second, there are the traditional guardians of the regime — its inner circle — consisting of the Makhlouf family, a group of Alawites and senior officers, as well as the established bourgeois class and old Baathists. Third is a group loyal to Iran, consisting of a class of new traders supported by Iran, and from which they take orders, including some from the old bourgeois middle class that have a religious connection to Iran. The fourth group is a very small group loyal to Russia, which prior to Russia’s influence, had dealings with Eastern Europe. Finally, there is the group of warlords who have recently emerged as powerful and who, according to Al-Karim, “don’t take sides but give their loyalty to the strongest party across the regions they operate in, such as the Qatirji brothers, Haswani, and others."

Over the last years, alliances and differences between these groups have shifted according to financial interests. For example, since 2015, a very strong alliance has emerged between the Russian group and the group linked to the al-Assads. This relationship was further strengthened in mid-2018. According to Al-Karim, this led the regime's traditional old guard — or what is now recognized as Rami Makhlouf's movement — to get closer to Iran as it sought a strong ally.


What About the Ramak Company? 

In his videos, Rami Makhlouf mentions the Ramak Company several times. The company established its presence in the capital, Damascus, on January 12, 2003, when Rami Makhlouf set up the Ramak Investment Company with a capital of SYR 3 million at the time. In May 2009, Makhlouf also founded the Ramak Contracting Company in Damascus, boasting a capital of SYR 10 million.

Five months after the start of widespread protests in Syria in early 2011, Makhlouf founded the Ramak Humanitarian Projects Company, and in September 2018, he founded the Ramak Development and Investment Projects Company, with a capital of SYR 5 million. On November 11 of the same year, Makhlouf founded two further companies, the Ramak Investment Group, with a capital of SYR 15 million, and the Ramak Development and Humanitarian Projects Private Joint Stock Holding Company, with a capital of SYR 1.3 billion. This company holds a majority stake in the Syriatel telecom company, estimated to be 42 percent of its capital after Makhlouf transferred all his Syriatel shares into it, a fraudulent activity that circumvented the country’s business law and practice but for which Makhlouf could not be held accountable. 

The Ramak Development and Humanitarian Company operates in real estate, commercial, industrial, agricultural, service, and investment fields, in addition to working in transportation, tourism, and contracting. According to its articles of incorporation, the company has the right to buy shares or stocks in joint-stock or limited liability companies that engage in any investment activity, and the company can also contribute to the establishment of financial institutions in line with Syrian laws and regulations.

Prior to 2010, Ramak was active in establishing and building hotels, such as the Rotana Hotel in the capital, Damascus, as well as projects near Damascus International Airport and the suburbs of Damar and Qudsaya. It was also involved in construction projects in Yafour, where the most prominent Syrian officials and businessmen reside, in addition to projects developing the Tishreen Thermal Station.

Researcher Younis Al-Karim attributes the establishment of the Ramak Humanitarian Company to Rami Makhlouf's intention "to do away with popular pressure that accused him of corruption prior to the Syrian revolution, with many countries having criticized the economic authority granted to Rami Makhlouf by Bashar al-Assad, in a way that real projects could only be built through partnership with Rami."


What Is the Al-Bustan Charitable Association?

Although the Al-Bustan Charitable Association was established in May 1999 by Rami Makhlouf, it has been more active over the last nine years, during the civil war in Syria, particularly in the field of relief and humanitarian work. It assists the families of the regime's personnel who have been killed or wounded, as well as supporting and forming armed militias to fight alongside the Syrian regime's forces and Iranian militias.

The association is located in the Bustan Al-Basha area of the ​​Lattakia countryside, but it also has branches and headquarters in many other Syrian governorates.

In August 2019, the security committee at the Republican Palace summoned Samer Darwish, Director-General of the Al-Bustan Association, who has close ties to Rami Makhlouf, against the backdrop of issues related to "corruption and financing terrorism, the association's funding sources and that of its militias' salaries, among other charges," according to local media. 

Samer Darwish is the son of retired Major General Ahmad Darwish, who worked as a security affairs adviser at the Republican Palace. Darwish's arrest did not last long, but patrols belonging to the Republican Palace's security apparatus did raid association headquarters and centers, confiscating a number of electronic devices and arresting some of its employees.

One of the association's volunteers, who asked not to be named for security reasons, told IranWire: "Darwish was removed from the association and his money was frozen by the security services ... Darwish was one of Rami Makhlouf's men and the supervisor for organizing the financial structure of the militia that was financed monthly by the association up until June 2019, when Darwish was fired."

The source confirmed that "the National Defense Forces and part of the military security received direct funding from the Al-Bustan Association, with each member of personnel receiving a salary of approximately SYR 120,000, which was then equivalent to approximately US$150."

Over the last two decades, the association's activities have largely been focused on the Syrian coast, indicating Rami Makhlouf's attempts to "create a popular stronghold on the coast,” with people showing absolute loyalty to the Syrian regime. This was evident in recent videos, in which Makhlouf appeared to address this popular hotbed on the coast.

In addition to this, Makhlouf’s humanitarian companies constitute a means to smuggle funds from the Syrian state, as according to Syrian law, the owners of these institutions are exempt from taxes. According to Al-Karim, "Despite its incursions into the state, all of the regime's papers, economic actions, and the measures that it carries out are 100 percent legal.” But, he says, the regime has sought to "create loopholes and gaps with which it can smuggle and pass laws in its favor — at the expense of the Syrian state."

He added: "In order for the benefits obtained by Rami Makhlouf not to be applicable to others, the formation of other associations with the same benefits were prohibited."

Despite being the nucleus for the empowerment and formation of militias, "the association was a means to undertake a geographical, demographic, economic, and scientific survey,” Al-Karim says. “These issues are very important in understanding the country, and such associations are an essential component of the regime ... We can consider it the regime's back garden, if you will."


Rami Makhlouf and Iran

When the pressure on the regime's old guard intensified, the Rami Makhlouf-linked group began to search for a "strong ally” — which they found in Iran, after the Russian group forged closer links to the al-Assad group. In this way, the interests of both parties came together in the "building of a popular stronghold."

Indeed, Iran seeks to "win the loyalty of the Alawite stronghold from among the poor citizens of the coast in order to pressure Russia into making room for strategic Iranian projects," according to Al-Karim.

Despite this, these relationships do not constitute a pattern that permanently links together the constituent parts of the Syrian regime. Rather, relationships change with shifting interests, meaning that there are no deep alliances between the groups, including the relationship between Makhlouf and Iran.

In the two recently-released videos, Rami Makhlouf gives a "strange" religious speech, according to diplomat Bassam Barabandi — strange because, as he explains, "Rami does not belong to a religious family and is not close to religion; even his actions and behavior do not indicate that he is a man of morals."

He added: "During a period of conflict in 2016, 2017 and 2018, the interests of Rami and Hezbollah converged by way of the Al-Bustan Association, which was a humanitarian tool, but at the same time a tool for providing Rami's militias with Iranian training. In this way, the ‘religious dimension’ of Makhlouf's recent speech could be directed at members of his pro-Iranian militia, some of which have become Shiites." Barabandi went on to say that "part of the speech was directed at the Alawite community on the coast.” It was those people, Barabandi says, that Makhlouf wished to point out to that they were in “a difficult situation.'"

In spite of this, it appears that the ties between Rami Makhlouf and Lebanese Hezbollah, an Iranian extension in the region, are greater than this, evidenced by the Egyptian and Saudi authorities’ discovery of huge quantities of narcotics smuggled from Syria over the last 10 days, one consignment of which was discovered on a commercial shipment to Rami Makhlouf's factories.

"Hezbollah is the largest drug manufacturer in the Middle East,” says Barabandi. “This indicates that Rami's relationship with Hezbollah is deep. It is not ideological, but is based on the terms of mutual financial benefit and the destruction of their enemies, given that Saudi Arabia and Egypt are the enemies of the axis of resistance. This is a steadfast Iranian policy."







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